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Leveraging technology & data to improve financial management in the IT Sector

The changing IT systems that require coordination between tax and technology experts and redesigning business software can be quite a challenge, especially as a majority of IT firms lack financial management experience.Premium
The changing IT systems that require coordination between tax and technology experts and redesigning business software can be quite a challenge, especially as a majority of IT firms lack financial management experience.

The third episode of a Clear powered series of virtual panel discussions, Navigating Compliance with Technology, titled ‘Transforming financial management in the IT sector’, looks at how cutting edge technologies and the power of big data can be leveraged to save on taxes and improve profitability for those operating in the IT domain.

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As the world witnessed one of the worst pandemics ever, affecting economies around the world, India was no exception to this downfall. For the IT sector, this meant disruptions in the electronics value chain and an inflationary effect on products.

But, as ‘digital’ became the new buzzword for survival, and every industry wanted to climb the automation bandwagon with an acceleration of remote working, the demand for IT and IT services hit a new inflection point. In fact, IT has emerged as the backbone for business in the post Covid-19 period.

This has expanded opportunities for fresh entrepreneurship, innovation and new business propositions. In this landscape, the IT industry needs to rework its financial management strategies. The challenges can range from a lag in tax compliance operations as remote-working employees lack timely access to information to tax implications arising from reconfigurations in supply chains across geographies.

The third episode of a series of virtual panel discussions, Navigating Compliance with Technology, titled ‘Transforming financial management in the IT sector’, looks at how cutting edge technologies and the power of big data can be leveraged to save on taxes and improve profitability for those operating in the IT domain. The series is powered by Clear.

The GST regime has already brought a significant shift for the IT sector with respect to regulatory compliances. For a sector that has put India on the global tech map, evolving towards seamless financial compliance can be burdensome due to the upgradation of accounting systems and ERPs to align with GST norms.

The changing IT systems that require coordination between tax and technology experts and redesigning business software can be quite a challenge, especially as a majority of IT firms lack financial management experience.

For Sify, which is one of the first ISB players in the country and has transformed from a B2C to a B2B company, the finance function has also undergone complete transformation to keep pace with this change.

“The finance model for B2C is entirely different from that of B2B. All our transactions are happening through digital model of payments. The transformation that has happened in the finance model over the last 15 years is about capturing the data in real time for people to take decisions appropriately," said Ganesh Sankararaman, CFO, Sify Digital Services Ltd.

For the IT sector that has been at the helm of innovation and transformations since the past year and a half, technology has had a major role to play in running their own business.

“If you look at the mantra for many companies today, the pandemic laid it out more importantly for us that either you adapt or die. The rapid convergence of business and technology often determines competitiveness. We are in the throes of transformative growth globally and create adaptable processes that are driven by data and constant communication. We have now moved from reducing costs to strategically investing so that we enhance customer experience, increase revenue and expand the customer base," said Hemlata Nevetia, CFO, Allstate Solutions Private Limited.

The GST regime has already brought a significant shift for the IT sector with respect to regulatory compliances. As the demand for IT services saw a boost post the pandemic, tech majors have deployed varied solutions for more efficient financial management.

“The spend on IT across all industries has gone up substantially. For our internal IT journey also, digitization has got a boost over the last 18 months as we move towards becoming a more digital organisations. While IT companies do a lot of services for the external IT, the internal IT can sometimes be a little behind in catching up. The pandemic has highlighted the importance of the internal IT for us," said Vaidyanathan Mahadevan, CFO, Polaris Consulting and Services Ltd.

Highlighting the need for technology in compliance, which started from 2017 and then the pandemic, Swaroop Repaka, Director of Strategy, Clear stated some major reasons. “The first is the interdependence of compliance and supply chain functions and the second is the deep real-time compliance required for the government that can only happen with technology with the vast pool of data that is available out there," he said.

The tax rate of IT services and goods experienced a hike after the implementation of GST. While a single GST tax has replaced the VAT, service tax, excise duty levied on purchase of IT services, there have also been major changes in the IT e-commerce space.

One of the biggest challenges faced was the blockage of working capital and the cumbersome process of getting refunds done with the huge amount of paperwork involved. The reconciliation of ITC based on GST was another area that needed some tech intervention.

“This is a very non-trivial problem because it involves not working just with the enterprise systems but also with the vendors and the government. We need to bring them all together and embed it deeply into the enterprises’ ERP. It’s a layer on top of the ERP where a lot of smart reconciliation happens in real time and vendors can log in in real-time and know which invoices need to be put on hold. It’s putting that painful ITC journey on auto pilot," said Repaka.

The government is moving very fast on the compliance front and legacy companies, SMEs specifically, need to be on top of the curve when it comes to ensuring compliance. This is going to have an impact on procurement decisions and working capital cycles for both large enterprises and SMEs, which GST forms part of.

“Large enterprises were fortunate as they were already automated in the processes. But, what I see is that SMEs are yet to catch up with the large enterprises and that is hurting the procurement decisions and supply chain decisions as well. The government wants their control on responsibilities to be a kind of transit to large enterprises where at least B2B transactions need to be validated," said Sandip Dadkar, Head of Finance, Cybage Software Private Limited.

So, is the golden age here for finance, especially when technology plays the role of an enabler? “If you look 10-20 years ahead, the pace of technology evolution will be much faster than it was in the last decade. We are not yet done, but only at an inflection point," Repaka concluded.

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